August 30, 2013

Black incomes are up, but wealth isn’t

black-whiteAssetsSince the 1960s, household-income growth for African-Americans has outpaced that of whites. Median adjusted household income for blacks is now 59.2% that of whites, up slightly from 55.3% in 1967 (though in dollar terms the gap has widened).

But those gains haven’t led to any narrowing of the wealth gap between the races. In fact, after adjusting for inflation, the median net worth for black households in 2011 ($6,446) was lower than it was in 1984 ($7,150), while white households’ net worth was almost 11% higher. And as NYU researcher David Low noted in a recent working paper, high-earning married black households have, on average, less wealth than low-earning married white households.

Exactly why income gains haven’t translated into wealth gains for blacks is something of a puzzle. Researchers have identified several possible factors — less intergenerational inheritance, higher unemployment and lower incomes, differing rates and patterns of homeownership, marriage and college education — without reaching any consensus on their relative importance. As Low commented, “[t]here is…little quantitative understanding of why the black-white wealth gap exists, despite an almost embarrassing number of potential explanations.”

black-whiteDebtWe decided to examine the differing compositions of black and white household wealth with data from the Federal Reserve’s triennial Survey of Consumer Finances. We looked at average asset ownership and debt levels, rather than medians, so we could see how much each component contributed to total net worth. (Bear in mind that averages are skewed by households at the top of the wealth distribution, and that the average for any given asset class includes households who don’t own those particular assets. Accordingly, these data say more about blacks and whites as groups than about the “typical” African-American or white household.)

Value of primary residence was the single biggest asset for both groups, but much more so for black households: On average, housing wealth accounted for 49% of black household assets, compared with 28% for the average white household. But the average home value was far lower for black households: $75,040 versus $217,150.

A 2013 Brandeis University report noted that not only is home ownership lower among blacks than whites, but that black-owned homes tend not to appreciate in value as much as white-owned homes, which the Brandeis researchers attributed to “residential segregation artificially lower[ing] demand, placing a forced ceiling on home equity for African-Americans who own homes in non-white neighborhoods.” Blacks also tend to carry proportionately more mortgage debt, at higher rates, than whites. And, as a 2011 Pew Research Center report found, the housing crash was harder on blacks than whites (though both groups fared better than Hispanics).

Beyond housing, one striking difference between black and white household assets was the role of business ownership. Equity in businesses was the second-biggest asset class among white households, accounting for 18% of average assets, and grew 106% in value between 1983 and 2010. Among black households, however, business equity accounted for less than 4% of assets on average, and actually lost value between 1983 and 2010. After primary residence, the single biggest asset type for black households was “other residential property,” accounting for about 12% of average assets; but that asset class only grew 37% in value between 1983 and 2010.

Retirement accounts were the third-biggest asset class, on average, for both black and white households, and rose in value over the past three decades at similar rates. But black households, on average, started out with far less in their accounts: $1,496 in 1983, compared with $9,483 for white households.

The Brandeis researchers argue that, due to discriminatory employment patterns, “black workers predominate in fields that are least likely to have employer-based retirement plans and other benefits, such as administration and support and food services. As a result, wealth in black families tends to be close to what is needed to cover emergency savings while wealth in white families is well beyond the emergency threshold and can be saved or invested more readily.”

Average household debt rose steadily among both whites and blacks from 1983 to 2007. But while white households’ debt continued to rise between 2007 and 2010, to an average $113,598, it fell among black households over the same period, to an average $53,199 — mainly because of a decline in home mortgage debt. Overall, though, blacks continue to carry more debt relative to their household assets than do whites: 34.5% of average assets, versus 14.5% for white households.

Topics: African Americans, Economics and Personal Finances, Homeownership, Wealth

  1. Photo of Drew DeSilver

    is a senior writer at Pew Research Center.

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  1. SamusAndLucario4 weeks ago

    I don’t make more than minum wage and yet I am only 50k away from being a millionare at the age of 25. I accumulated over $950,000 in assets by spending my time and money building and accumulating assets. Instread of wasting hours on TV I obtained new skills for more human capital. I created one small business worth $750,000 and I am building my next one which will be worth over a million itself. One can spend their time and money on creating and obtaining wealth, or one can waste time and money keeping up with the joneses. The poor and middle class focus on working income instead of networth, and thus never realize how much wealth and potential they may have. If I, some lowly employee can make it, so can anyone else. Don’t let the socialist mantra of “You will never be in the 1%, the odds are against you” fool you into not chasing your dreams. Also study why most lottery winners go broke so you can a) see how to not spend your money and b) understand why marxism fails and why most people are not wealthy.

  2. UO2 months ago

    While the causes of the disparity are significant and complex; they are not difficult to understand. Intergenerational wealth contributes to this. Blacks of earlier generations earned far less than white counterparts. They were denied many of the benefits of the GI bill, denied home loans due to banks redlining, had disproportionate participation in several wars, lacked access to proper health care, lacked adequate housing, lacked steady commensurate safe employment, purposely excluded from the higher education institutions, suffered continued human rights atrocities, and much, much, much……..more.

    In more recent times, the war on drugs which involved the govt trafficking drugs into their neighborhoods, preditory banks and lending systems, failing schools (set up to fail them), “urban renewal” which led to kicking poor / middle class out and plundered their little resources and wealth, wide spread institutional racial oppression ( working 2 times as hard as others and getting half as much), glass and concrete ceilings in employment, locked out or limited from high paying industries, and mass incarceration (which often led relates to seizures of assets, getting longer/draconian sentences for lesser crimes).

    Most blacks are in the middle and lower classes, which were hit the hardest from the recession and from govt policies and tax codes that only favor the extremely (and seldom working) rich.

    So this wealth gap this is not at all surprising.

  3. John Smith7 months ago

    Life in Amerikkka is confusing!!!!

  4. T Mashing7 months ago

    Its actually worse than this piece great on huff post “America’s Financial Divide”…
    Here is where the economic picture gets clearer. A few years ago when economic inequality was just becoming a national topic, theGrio supported by MSNBC, wrote a piece titled “Who are the Black 1%”. In this article, they showed that nearly 96.1 percent of the 1.2 million households in the top one percent by income were white, a total of about 1,150,000 households. In addition, these families were found to have a median net asset worth of $8.3 million dollars…
    black households were shown as a mere 1.4 percent of the top one percent by income, that’s only 16,800 homes. In addition, their median net asset worth was just $1.2 million dollars. Using this data as an indicator only about 8,400 of the over 14 million African American households have more than $1.2 million dollars in net assets…
    Relying on data from Credit Suisse and Brandeis University’s Institute on Assets and Social Policy, the Harvard Business Review in the article “How America’s Wealthiest Black Families Invest Money” recently took the analysis above a step further. In the piece the author stated “If you’re white and have a net worth of about $356,000 dollars, that’s good enough to put you in the 72nd percentile of white families. If you’re black, it’s good enough to catapult you into the 95th percentile.” This means 28 percent of the total 83 million white homes, or over 23 million white households, have more than $356,000 dollars in net assets. While only 700,000 of the 14 million black homes have more than $356,000 dollars in total net worth. “America’s Financial Divide”

  5. Tamug9310 months ago

    How about you report on the true issue facing blacks in America. It is funny that the black families that live in the suburbs and have good educational systems can be successful and be more inline with other races in America.

    How about you look at the failed Democrat experiment in the inner-city neighborhoods where all these “statistics” are taken from. Keeping people on welfare, food stamps, a broken common core educational system do not help them be better people and help them live a better life. It promotes laziness, complacency and directly affects these “statistics”.

  6. Nlinneman11 months ago

    How much does the incidence of single motherhood cost black people? It seems to me that would have a large impact because it results in less encouragement to do well and to pursue higher education which is the real opening to more income.

    1. Thomas Smith5 months ago

      Not at all. I’m a product of a single parent household. we didn’t have much as far as income, but we had a lot of encouragement and love. The only difference is we (my brother and I) knew we and our family didn’t have the money to “fix” our mistakes so we had better not make them. With that understanding we learned very early that this country is much less forgiving to minorities than whites. It’s all about the ability set proper standards. that has nothing to do with color or wealth and everything to do with the standards you set for your family. There are many things that impact one’s life and ability to achieve before getting to the single parent household.

  7. Orlando coombs12 months ago

    The real wealth gap is this: 1 percent of the population in America owns 96 percent of the wealth. 99 percent of us are fighting for crumbs. That’s the real wealth gap. Cause the elites don’t care about what group of people who makes an extra $20,000.00 a year. They don’t care who got a college degree and who don’t. Cause remember this. Cause the poor keep scores with cars and clothes, the middle-class keep score with degrees and titles, and the wealthy keep score with their bank accounts. And elite of this country and the world got the biggest bank accounts in human history. You can’t even put a number on it. The Rockefellers and the rothchilds got over 300 trillion or more between them. This is built up over centuries. That’s not something built over a decade or so. That’s built up over generations, even centuries. Them two families which have many fixed marriages between them have more liquid cash assets than most nations around the world. That’s the real wealth gap.

  8. Orlando coombs1 year ago

    You must understand that blacks from jump street are already starting with less. And when you start with less due to intergenerational poverty, institutional racism, job discrimination, poor education, and long term unemployment you usually end up with less. That’s the same for people of any race. But we got many places in America where our people are doing great. 70 to 80 percent of African-Americans are middle-class. Only 20 percent of blacks are living in ghettos and in poverty. About 10 percent of blacks live in extreme poverty. You have about 15 to 20 percent of blacks in America locked into a permanent underclass. Awash in extreme poverty, crime, violence, alcoholism, drug addiction, chronic unemployment, incarceration, poor health, lack of education, and deplorable living conditions. These things kill the human spirit. Plus with most of the poor African-American girls and boys without fathers contributes immensely to the poverty. This causes low self-esteem in children which leads bad decisions and bad choices which leads to an increasingly difficult life. Plus women can’t raise boys to be men, they can’t do it. Cause more young boys black, white, and across the board had fathers, the jails would be empty. Cause these young girls and boys would make better choices due to good self-esteem
    and the proper guidance and discipline. Their lives would have more hope and they would feel better about themselves cause when you feel good about yourself and your life you make good choices and decisions because your life takes on a greater purpose. Inner thoughts and feelings dictate the outcome of your life cause guides your decisions. Life is about choices.